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A FEDERAL PRIVATE RIGHT OF ACTION FOR MORTGAGE FRAUD IS UNNECESSARY AND WOULD BE HARMFUL TO THE MORTGAGE INDUSTRY Another approach that has been considered by some is the creation of a private right of action for mortgage fraud. The creation of a private right of action for mortgage fraud would harm members of the mortgage industry — the very ones mortgage fraud laws should protect.

bringing a private civil action in the case of mortgage fraud, but they also frequently provide for treble damages, punitive damages and attorneys fees.35 For example, North Carolina’s UDAP statute creates a private cause of action for “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.”36 The commission of any such act that injures a person or a business may be punished by treble damages and attorneys fees.37

Participants in the mortgage transaction process already have access to private rights of action under state law.

A private right of action for mortgage fraud is unnecessary because victims of mortgage fraud already have private rights of action under state law. Every state has laws providing for private rights of action for fraud. Any person or entity wishing to bring a civil action for mortgage fraud can do so under these statutes. For example, Georgia law has at least three statutory provisions that provide remedies to victims of fraud. Section 51-6-1 of the Georgia Code provides that “Fraud, accompanied by damage to the party defrauded, always gives a right of action to the injured party.” Sections 23-2-51 et seq. also provide private equitable rights of action for fraud. Section 13-5-5 provides that “[f]raud renders contracts voidable at the election of the injured party.”

The lone state law specifically addressing mortgage fraud suggests that the states recognize that private rights of action for mortgage fraud already exist. Georgia’s Residential Mortgage Fraud Act38 creates the criminal offense of residential mortgage fraud, but does not create a private right of action for mortgage fraud. Indeed, as discussed above, Georgia law — like the laws of other states — already provides for a private right of action for fraud, including mortgage fraud.39 Most other state bills addressing mortgage fraud are patterned after Georgia’s40 and similarly do not provide for a private right of action — suggesting that other states recognize that an additional private right of action for mortgage fraud is not necessary.

Any federal law broad enough to reach all instances of mortgage fraud must be tempered by prosecutorial discretion.

Additionally, injured parties can bring civil claims against persons committing fraud under the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. Engaging in a pattern of “racketeering activity” — which includes violations of the federal mail and wire fraud statutes33 — is a criminal offense.34 In addition to the criminal penalties, any person “injured in his person or property” by reason of a RICO violation may bring a civil action. In a civil action, a litigant may recover treble damages, as well as attorney fees.

The very breadth necessary to make a mortgage fraud statute effective in the hands of law enforcement would make it harmful to the mortgage industry in the hands of private litigants. To encompass all instances of mortgage fraud — including those not yet discovered or considered — a statute addressing mortgage fraud necessarily must be broad. In the hands of responsible law enforcement exercising appropriate discretion, a broadly phrased statute can be a valuable tool. And, in those

State laws creating private rights of action for unfair and deceptive acts and practices (UDAP) would also apply to mortgage fraud. Not only do these laws provide a means for


18 U.S.C. § 1961(1)(B).


18 U.S.C. § 1962.

35 36 37 38 39 40

18 U.S.C. § 1964(c). N.C.G.S. § 75-1.1(a). Id. §§ 75-16, 75-16.1. Ga. Code §§ 16-8-100 et seq. Id. § 16-8-102.

See, e.g., Arizona S.B. 1221; Florida S.B. 240 & H.B. 349; Minnesota S.F. 797 & H.F. 851; Texas H.B. 716.

Mortgage Bankers Association

© Mortgage Bankers Association 2007. All Right Reserved.


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